Many of us are aware of the long, long time it took for Bank Negara Malaysia to bring the non-bank financial institutions such as Bank Rakyat and the Malaysia Building Society Berhad (MBSB) into its regulatory purview. This effort was to allow the monetary authority to more efficiently manage the monetary aspects of Malaysia's economy.

The likes of Bank Rakyat and MBSB were able to implement fairly liberal and generous financial products below the radar of Bank Negara previously.

With the onset of the Financial Services Act 2013, Bank Negara's reach over Malaysian financial-type institutions was almost complete.

This new move by the Urban Well-being, Housing and Local Government Ministry to issue moneylending licences to property developers threatens to undermine Bank Negara's monetary management.

We thought it was clear as the light of day that Bank Negara instituted measures over the recent 2 years to cool down the overheated property market and prevent property bubbles from forming. Property bubbles that burst can have very serious implications for the country's economy.

And, moneylending, being a financial transaction has a direct causal link to the overall monetary health of the Malaysian economy. A fragmented moneylending market that is outside Bank Negara supervision is a bad thing. Worse, this fragmented moneylending market will have ZERO SUPERVISION because the Urban Well-being, Housing and Local Government Ministry does not have any competency in understanding the impact of possible aggressive lending methods by desperate property developers.

This is where the nightmare scenario may happen and property bubbles start to form.

I am already so terribly annoyed with the fragmented property development sector. That is largely under the purview of local councils and state governments.

Judging from the volatility of the property sector, it is clear that there really is no national property development policy.

Property developers appear to be no different from farmers. The supply and demand of the property market exhibits all the bad traits warned by the Cobweb Theory in economics. One basic definition can be found here and I reproduce it for you-

The cobweb theorem is an economic model used to explain how small economic
shocks can become amplified by the behaviour of producers. The amplification is,
essentially, the result of information failure, where producers base their
current output on the average price they obtain in the market during the
previous year. This is, to some extent, a non-rational decision, given that a
supply side shock between planting and harvesting (such as an unexpectedly good
or bad harvest) can lead to an unexpectedly lower or higher price. This results
in either a higher output or a lower output in subsequent years, and moves the
market into a long-term disequilibrium position.